Chapter 2
Capital Markets
European Real Estate Market Outlook 2026
3 Minute Read
3 Minute Read
Positive sentiment to carry over into 2026
Positive investor sentiment in the European real estate investment market is set to continue this year, as the stabilisation in asset prices brings buyers and sellers closer together.
In line with our earlier predictions*, however, this recovery cycle is proving to be gradual. Investor interest is based on income-led performance rather than driven by yield compression and / or cheap debt on the back of low interest rates. We expect more product to be put up for sale this year, as sellers have adjusted to today’s values. Debt maturities or equity rotation will remain the main reasons for investors deciding to sell.
Rental growth will continue to be the primary driver of capital value growth in 2026, which means investors with higher required returns will need to be creative to unlock value. This puts the emphasis on choosing the right operating partner. M&A activity will continue as buyers seek to take advantage of arbitrage opportunities in book values both in public and private markets, with several large platforms currently on the market.
Deal activity will be helped by a supportive real estate financing market, with debt funding available for a wide range of sectors and investment strategies. There is a strong willingness to lend, and growing competition among lenders is resulting in margin compression. Despite lower margins, borrowing costs are expected to decline only marginally in 2026 as we do not foresee a material fall in interest rates.
Note: *CBRE European Real Estate Market Outlook 2025
Figure 2: European real estate investment volumes (EUR billion)
Trends to watch
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Debt markets
Growing competition in the lending market will maintain pressure on margins in 2026. Lenders are looking to increase origination activity, and the focus on refinancing in recent years should shift to a more equal balance between refinancing and acquisition loans.
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Living
Living has cemented its position as the largest investment sector in Europe and is expected to remain the biggest driver of investment. €50-100m deal sizes are performing well at core yields, but larger portfolios are more challenging unless part of a privatisation strategy.
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Office
Office investors will prioritise assets in the core-plus and value-add segments in prime locations. Larger tickets with reversionary potential are expected to attract strong competition from both domestic and international investors.
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Logistics
Significant global capital remains targeted towards European logistics, and the debt market continues to be very supportive. Investors are therefore expected to prioritise deals that deliver their required returns through rental reversion or more intensive asset management, against a backdrop of slower occupational growth.
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Retail
We expect the resurgence in retail investment to continue, with interest driven by attractive price levels and solid operational performance. Large shopping centre deals will continue to make a comeback. Demand for retail parks will persist, with lack of product being the main issue.
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Hotels
The hotel sector will continue to see strong structural investor demand across Europe as macro factors improve, with the main purchasers being specialised investors who can partner with developers for extensive refurbishments.
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Data Centres
Data centre investment is poised for growth, fuelled by AI demand and more favourable lending conditions. Partnerships between operators and lenders with a track record in the sector, or complementary sectors such as power infrastructure, will give operators access to favourable loan terms and unlock cross-industry synergies.